For the very first time since its rise in December 2015, the South African Rand has dropped down from its usual R15.2/$ to R14.96/$ on Wednesday after US fed chair Janet Yellen’s depreciation of US dollar against most currencies.
Faced by a slower global growth and lower oil price, the US dollar saw a major drawback against other currencies like the rand which it was trading at R14.96 by 10: 15.
Yellen said: “The chances of a hike in the US before the first (half) of 2016 has dropped to below 25% now,” according to TreasuryOne. “US treasury 10Y yields also dropped below 1.80% overnight. This has caused the dollar/rand to gain some momentum ….”
And Umkhulu Consulting’s Adam Phillips said Yellen’s decision to see that the rand move back to R14.96/$ was a needed caution.
However, RMB analyst John Cairns said Yellen was “outright dovish in her comments yesterday, saying explicitly that the Fed would ‘proceed cautiously’ with rate hikes, while arguing that ‘it is too early to tell if this recent faster pace [of core inflation] will prove durable’.
“Market expectations of hikes have shifted back accordingly.”
With the US payrolls data due on Friday,the dollar continued to be the major risk for the rand but local politics comes to the fore in the next two days, explained Cairns.
The rand has been faced with various issues weakening it in the currency market and these pressing issues range from political and economic matter of the country.
Earlier on Tuesday, director and chief currency dealer at TreasuryOne, said sentiment would drive the rand for the first half of the week, Wichard Cilliers.
He postulated that the rand to trade between R15.40 and R15.60, ahead of the local balance of trade data for February to be released on Thursday and US jobs data released on Friday. He reportedly said;
“Markets will look for guidance from Janet Yellen’s speech on Tuesday before buying dollar denominated assets as they position themselves for Friday’s all-important US non-farms payroll number,” said Cilliers.
“With US Fed members like James Bullard suggesting that an interest rate hike in April is possible, it will be interesting to see if Yellen will continue the collective hawkish sentiment her peers hold.”
Meanwhile, according to Momentum economist Sanisha Packirisamy “unpopular political decisions in December last year have damaged business confidence domestically, keeping the rand elevated and posing a key threat to the inflation trajectory”.
She said despite recent strengthening in emerging market currencies – following a more dovish rhetoric by the Fed – the JPMorgan emerging market currency index is still markedly weaker than where it traded a year ago
The finance minister who is concerned that the rand will retain its position of R15/$ is expected to reply to the Hawks on Wednesday with regards to the alleged “rogue unit” in Sars.